CHADDS FORD, Pa., Feb. 15 /PRNewswire-FirstCall/ -- Endo Pharmaceuticals Holdings Inc. , a specialty pharmaceutical company with market leadership in pain management, today reported financial results for the fourth quarter and full year ended December 31, 2005.
Net sales for the fourth quarter were $240.8 million compared with $157.3 million in the fourth quarter of 2004, an increase of 53%. Net income for the three months ended December 31, 2005 was $72.9 million compared with $29.2 million in the comparable 2004 period. As detailed in the Supplemental Financial Information below, adjusted net income for the three months ended December 31, 2005 was $77.8 million compared with $31.5 million in the same period in 2004.
Diluted earnings per share for the three months ended December 31, 2005 were $0.54 compared with $0.22 in the comparable 2004 period. As detailed in the Supplemental Financial Information below, adjusted diluted earnings per share for the three months ended December 31, 2005 were $0.58 compared with $0.24 in the same period in 2004.
Full-Year Results
Net sales for the year ended December 31, 2005 were $820.2 million compared with $615.1 million for the year ended December 31, 2004, and increase of 33%. Net income for the year ended December 31, 2005 was $202.3 million versus $143.3 million in the comparable 2004 period. As detailed in the Supplemental Financial Information below, adjusted net income for the year ended December 31, 2005 was $230.2 million compared with $154.8 million in the same period in 2004.
Diluted earnings per share for the year ended December 31, 2005 were $1.52 compared with $1.08 in the comparable 2004 period. As detailed in the Supplemental Financial Information below, adjusted diluted earnings per share for the year ended December 31, 2005 were $1.73 compared with $1.17 in the same period in 2004.
“The continued growth of Lidoderm(R), our largest-selling product, was a significant factor behind our strong financial performance in 2005,” said Peter A. Lankau, president and chief executive officer. “In addition, we made progress in a number of key areas that we believe positions us for continued strong growth, including the filing on December 22, 2005 of our complete responses to the FDA’s approvable letters on the NDAs for each of our investigational products oxymorphone ER and oxymorphone IR tablets. Our complete responses have been accepted by the FDA, and we anticipate action letters on both of these development products by June 22, 2006.”
Oxycodone ER Litigation
The company had announced on February 1, 2006 that the Federal Circuit Court of Appeals had vacated its unanimous June 7, 2005 affirmance of the Opinion and Order issued in Endo’s favor by the U.S. District Court for the Southern District of New York, which found Purdue had committed inequitable conduct in the U.S. Patent and Trademark Office. The Federal Circuit also affirmed the District Court’s finding that, if Purdue’s patents are enforceable, Endo’s oxycodone extended-release tablets infringe these patents. Further, the Federal Circuit issued a new opinion on February 1, 2006 remanding the case to the same district court for its further consideration as to whether the Purdue patents are unenforceable.
The company has reviewed the Federal Circuit Court’s opinion with counsel and believes that, on remand, the District Court should again find that Purdue’s patents are unenforceable due to Purdue’s inequitable conduct before the U.S. Patent and Trademark Office. Endo does not currently intend to pursue anen banc rehearing of the Federal Circuit Court’s opinion, but rather intends to pursue the remand proceedings in the District Court. In the event of a final, nonappealable adverse determination against it, the company would be required to terminate its sales of its bioequivalent version of OxyContin.
In the event that there is a final nonappealable judgment that Purdue’s patents are valid and enforceable, Endo could face substantial liability for patent infringement and be obligated to pay Purdue damages in an amount to be determined by the District Court. Damages may be calculated based on profits that Purdue may have lost to Endo’s sales of its generic OxyContin for the period the company sold the product, a reasonable royalty, and/or a variety of other legal theories, together with pre- or post-judgment interest on any such damages award. Although there can be no assurance, the company believes that it would be able to fund the payment of these damages without materially adversely affecting the operations of its business, including its acquisition and licensing strategy. The outcome of litigation is always uncertain, as are the imposition and level of damages. However, after consultation with counsel, the company believes that it is unlikely that Purdue would be awarded enhanced damages, such as treble damages.
2006 Guidance
Endo affirms its financial guidance for 2006 and expects net sales in 2006 to be approximately $860 to $880 million and adjusted earnings for the year ended December 31, 2006 to be approximately $1.75 to $1.80 per diluted share, which excludes any stock compensation charges and estimated payments to partners for successful achievement of regulatory and other milestones. These 2006 estimates include estimated net sales of the company’s generic OxyContin of approximately $50 to $60 million and estimated earnings attributable to its generic OxyContin sales of approximately $0.20 to $0.24 per diluted share.
Use of Non-GAAP Measures -- Consolidated EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share:
Consolidated EBITDA, Adjusted Net Income and Adjusted Diluted Earnings per Share are non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with accounting principles generally accepted in the United States and may be different from non-GAAP financial measures used by other companies. Endo refers to these non-GAAP financial measures in making operating decisions because it believes they provide meaningful supplemental information regarding the company’s operational performance. For instance, Endo believes that these non-GAAP financial measures facilitate its internal comparisons to its historical operating results and comparisons to competitors’ results. The company includes these non-GAAP financial measures in its earnings announcements because it believes they are useful to investors in allowing for greater transparency related to supplemental information used by Endo in its financial and operational decision-making. In addition, Endo has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting at this time. Further, Endo believes that these non- GAAP financial measures may be useful to investors as it is aware that certain of its significant stockholders utilize these measures to evaluate its financial performance. Finally, these measures are considered by the Compensation Committee of Endo’s Board of Directors in assessing the performance and compensation of substantially all of its employees, including its executive officers. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this earnings announcement to their most directly comparable GAAP financial measures as provided with the financial statements included in this press release and are encouraged to read the definition of Consolidated EBITDA and the description of the reconciling items at the end of this press release.
Supplemental Financial Information
A reconciliation of net income as determined by GAAP to adjusted net income for the three months ended December 31, 2005 and December 31, 2004 is as follows (Certain prior period amounts have been reclassified to conform to the current period presentation):
(Unaudited) Three Months Ended December 31, 2005 2004 (in thousands, except per share data) GAAP net income $72,881 $29,210 Add: Income tax 42,630 17,922 GAAP income before income tax 115,511 47,132 Add: Employer payroll taxes payable by Endo Pharma LLC 7,669 751 Add: Upfront and milestone payments to partners 750 3,000 Less: Reversal of the remaining reserve related to the transdermal fentanyl patch inventory (679) - Adjusted income before income tax 123,251 50,883 Pro forma income tax 45,486 19,348 Adjusted net income $77,765 $31,535 Diluted weighted average shares outstanding 133,744 132,749 GAAP diluted earnings per share $0.54 $0.22 Add: Employer payroll taxes funded by Endo Pharma LLC, net of tax 0.04 0.01 Add: Upfront and milestone payments to partners, net of tax 0.01 0.01 Less: Reversal of the remaining reserve related to the transdermal fentanyl patch inventory, net of tax (0.01) - Adjusted diluted earnings per share $0.58 $0.24
A reconciliation of net income as determined by GAAP to adjusted net income for the year ended December 31, 2005 and December 31, 2004 is as follows (Certain prior period amounts have been reclassified to conform to the current period presentation):
(Unaudited) Year Ended December 31, 2005 2004 (in thousands, except per share data) GAAP net income $202,295 $143,309 Add: Income tax 121,949 87,787 GAAP income before income tax 324,244 231,096 Add: Upfront and milestone payments to partners 27,250 13,000 Add: Employer payroll taxes payable by Endo Pharma LLC 7,669 1,742 Add: Write-off of transdermal fentanyl patch inventory and unamortized portion of the license fee 9,836 - Add: Termination of development agreement - 3,800 Adjusted income before income tax 368,999 249,638 Pro forma income tax 138,781 94,831 Adjusted net income $230,218 $154,807 Diluted weighted average shares outstanding 133,289 132,718 GAAP diluted earnings per share $1.52 $1.08 Add: Upfront and milestone payments to partners, net of tax 0.13 0.06 Add: Employer payroll taxes payable by Endo Pharma LLC, net of tax 0.04 0.01 Add: Write-off of transdermal fentanyl patch inventory and unamortized portion of the license fee, net of tax 0.04 - Add: Termination of development agreement, net of tax - 0.02 Adjusted diluted earnings per share $1.73 $1.17
The following table presents a reconciliation of net income as determined by GAAP to consolidated EBITDA for the three months ended December 31, 2005 and December 31, 2004 (Certain prior period amounts have been reclassified to conform to the current period presentation):
(Unaudited) Three Months Ended December 31, 2005 2004 (in thousands) GAAP net income $72,881 $29,210 Add: Income tax 42,630 17,922 Less: Interest income, net (4,338) (1,365) GAAP operating income 111,173 45,767 Add: Depreciation and amortization 4,059 3,556 Add: Employer payroll taxes payable by Endo Pharma LLC 7,669 751 Add: Upfront and milestone payments to partners 750 3,000 Less: Reversal of the remaining reserve related to the transdermal fentanyl patch inventory (679) - Consolidated EBITDA $122,972 $53,074
The following table presents a reconciliation of net income as determined by GAAP to consolidated EBITDA for the year ended December 31, 2005 and December 31, 2004 (Certain prior period amounts have been reclassified to conform to the current period presentation):
(Unaudited) Year Ended December 31, 2005 2004 (in thousands) GAAP net income $202,295 $143,309 Add: Income tax 121,949 87,787 Less: Interest income, net (10,995) (2,161) GAAP operating income 313,249 228,935 Add: Depreciation and amortization 15,497 10,630 Add: Upfront and milestone payments to partners 27,250 13,000 Add: Employer payroll taxes payable by Endo Pharma LLC 7,669 1,742 Less: Write-off of transdermal fentanyl patch inventory and unamortized portion of the license fee 9,836 - Add: Termination of development agreement - 3,800 Consolidated EBITDA $373,501 $258,107 Product Review
Lidoderm(R). For the three months ended December 31, 2005, net sales of Lidoderm(R) were $130.5 million compared with $101.9 million in the same period in 2004, a 28% increase. For the twelve months of 2005, net sales of Lidoderm(R) were $419.4 million, up 36% from $309.2 million in the same period a year ago. Prescription growth for Lidoderm(R) was up 29% and dispensed unit growth was up 32% in the fourth quarter of 2005 over the comparable 2004 period. Prescription growth for Lidoderm(R) was up 36% and dispensed unit growth was up 38% for the twelve months ended December 31, 2005 over the comparable 2004 period. Endo estimates that prescription demand for Lidoderm(R) was approximately $125 million and $438 million in the fourth quarter and full-year of 2005, respectively.
Percocet(R). Net sales of Percocet(R) were $29.7 million for the three months ended December 31, 2005 compared with $16.1 million in the same period in 2004. Net sales of Percocet(R) were $110.7 million for the twelve months ended December 31, 2005 compared with $86.5 million in the same period in 2004. The company estimates that prescription demand for Percocet(R) was approximately $31 million and $109 million in the fourth quarter and full-year of 2005, respectively. Net sales of Percocet(R) had been adversely affected during 2004 due to the introduction of generic versions of Percocet(R) 7.5/325 and 10/325 during the fourth quarter of 2003. The company’s customers were reducing their inventory levels of Percocet(R) during most of 2004. Endo estimates that its customers’ inventory levels returned back to normal by the end of 2004 and remained at these levels at the end of 2005.
Frova(R). Net sales of Frova(R) were $13.0 million for the three months ended December 31, 2005 compared with $6.4 million in the same period in 2004. Net sales of Frova(R) were $38.1 million for the twelve months ended December 31, 2005 compared with $11.4 million in 2004, after its commercial launch by Endo in August 2004. The company estimates that prescription demand for Frova(R) was approximately $11 million and $40 million in the fourth quarter and full-year 2005, respectively. Endo began shipping Frova(R) upon closing of the license agreement in mid-August 2004 and commenced its promotional efforts in September 2004.
DepoDur(R). Net sales of DepoDur(R) were $0.9 million for the three months ended December 31, 2005 and $3.9 million for the twelve months ended December 31, 2005. The company began promoting DepoDur(R) in early 2005 with its 70-representative hospital sales force. The launch phase of this product is expected to continue throughout 2006.
Other branded products. Combined sales of all other branded products were $3.0 million for the three months ended December 31, 2005 compared with $5.2 million in the same period in 2004. Combined sales of all other branded products were $11.1 million for the twelve months ended December 31, 2005 versus $15.5 million in the comparable period in 2004.
Oxycodone extended-release. In June 2005, the company began commercial sale of all four strengths of its extended-release oxycodone tablets, the generic equivalent of Purdue Pharma’s OxyContin(R). Net sales of extended- release oxycodone tablets were $35.5 million and $114.0 million for the three months and full-year ended December 31, 2005, respectively.
Other generic products. For the fourth quarter other generic products were $28.1 million compared to $27.7 million in 2004. Due to increased generic competition with both Endocet(R) and the company’s morphine sulfate extended-release tablets, net sales from its other generic products decreased to $123.0 million for the full-year ended December 31, 2005 compared with $192.4 million in the same period in 2004. Endo expects this additional competition to continue to adversely affect its market share and the price of both Endocet(R) and its morphine sulfate extended-release tablets.
Note to Investors
Endo will conduct a conference call with financial analysts to discuss this news release today at 11:00 a.m. ET. Investors and other interested parties may access the conference call by dialing (800) 305-2862 (domestic) or (706) 634-1979 (international). Please dial in 10 minutes prior to the scheduled start time and reference conference code 5284111.
A replay of the call will be available from February 15 at 12:30 p.m. ET by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international), passcode 5284111, and will run until 12:00 a.m. ET on February 22, 2006. A simultaneous webcast of the call for interested investors and others may be accessed by visiting http://www.endo.com. In addition, a replay of the webcast will be available until 12:00 a.m. ET on February 22, 2006. The replay can be accessed by clicking on “Events” in the Investor Relations section of the website.
About Endo
Endo Pharmaceuticals Holdings Inc. is a fully integrated specialty pharmaceutical company with market leadership in pain management products. Through its wholly owned Endo Pharmaceuticals Inc. subsidiary, the company researches, develops, produces and markets a broad product offering of both branded and generic pharmaceuticals, meeting the needs of healthcare professionals and consumers alike. More information, including this and past press releases of Endo Pharmaceuticals Holdings Inc., is available online at http://www.endo.com.
Forward-Looking Statements
This press release contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management’s beliefs and assumptions, current expectations, estimates and projections. Statements that are not historical facts, including statements which are preceded by, followed by, or that include, the words “believes,” “anticipates,” “plans,” “expects” or similar expressions and statements are forward-looking statements. Endo’s estimated or anticipated future results, product performance or other non- historical facts are forward-looking and reflect Endo’s current perspective on existing trends and information. Many of the factors that will determine the company’s future results are beyond the ability of the company to control or predict. These statements are subject to risks and uncertainties and, therefore, actual results may differ materially from those expressed or implied by these forward-looking statements. The reader should not rely on any forward-looking statement. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Several important factors, in addition to the specific factors discussed in connection with these forward-looking statements individually, could affect the future results of Endo and could cause those results to differ materially from those expressed in the forward-looking statements contained in this press release. Important factors that may affect future results include, but are not limited to: market acceptance of the company’s products and the impact of competitive products and pricing; dependence on sole source suppliers; the success of the company’s product development activities and the timeliness with which regulatory authorizations and product launches may be achieved; successful compliance with extensive, costly, complex and evolving governmental regulations and restrictions; the availability on commercially reasonable terms of raw materials and other third party manufactured products; exposure to product liability and other lawsuits and contingencies; dependence on third party suppliers, distributors and collaboration partners; the ability to timely and cost effectively integrate acquisitions; uncertainty associated with pre-clinical studies and clinical trials and regulatory approval; uncertainty of market acceptance of new products; the difficulty of predicting FDA approvals; risks with respect to technology and product development; the effect of competing products and prices; uncertainties regarding intellectual property protection; uncertainties as to the outcome of litigation; changes in operating results; impact of competitive products and pricing; product development; changes in laws and regulations; customer demand; possible future litigation; availability of future financing and reimbursement policies of government and private health insurers and others; and other risks and uncertainties detailed in Endo’s filings with the Securities and Exchange Commission, including its Registration Statement on Form S-3 filed with the SEC on April 30, 2004, as amended, in Endo’s Registration Statement on Form S-3 filed with the SEC on September 2, 2005, as amended, and in Endo’s Registration Statement on Form S- 3 filed with the SEC on January 19, 2006. Readers should evaluate any statement in light of these important factors.
The following tables present Endo’s unaudited net sales for the three months and twelve months ended December 31, 2005 and December 31, 2004:
Endo Pharmaceuticals Holdings Inc. Net Sales (unaudited) (in thousands) Three Months Ended December 31, 2005 2004 Lidoderm(R) $ 130,517 $ 101,881 Percocet(R) 29,745 16,098 Frova(R) 13,010 6,430 DepoDur(R) 935 - Other Brands 2,956 5,191 Total Brands $177,163 $129,600 Oxycodone ER $35,484 $- Other Generics 28,142 27,694 Total Generics $63,626 $27,694 Total Net Sales $240,789 $157,294 Endo Pharmaceuticals Holdings Inc. Net Sales (unaudited) (in thousands) Year Ended December 31, 2005 2004 Lidoderm(R) $419,418 $309,230 Percocet(R) 110,700 86,510 Frova(R) 38,096 11,449 DepoDur(R) 3,931 - Other Brands 11,098 15,481 Total Brands $583,243 $422,670 Oxycodone ER $113,969 $- Other Generics 122,952 192,430 Total Generics $236,921 $192,430 Total Net Sales $820,164 $615,100
The following table presents Endo’s consolidated statements of operations for the three months and year ended December 31, 2005 and December 31, 2004 (Certain prior period amounts have been reclassified to conform to the current period presentation):
Endo Pharmaceuticals Holdings Inc. Consolidated Statements of Operations (unaudited) (in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, 2005 2004 2005 2004 NET SALES $240,789 $157,294 $820,164 $615,100 COST OF SALES 53,108 40,998 186,350 140,989 GROSS PROFIT 187,681 116,296 633,814 474,111 COSTS AND EXPENSES: Selling, general and administrative 54,262 54,696 211,246 179,270 Research and development 18,187 12,277 88,307 51,476 Depreciation and amortization 4,059 3,556 15,497 10,630 Impairment of other intangible asset - - 5,515 - Loss on disposal of other intangible, including license termination fee of $3,000 - - - 3,800 OPERATING INCOME 111,173 45,767 313,249 228,935 INTEREST INCOME, Net 4,338 1,365 10,995 2,161 INCOME BEFORE INCOME TAX 115,511 47,132 324,244 231,096 INCOME TAX 42,630 17,922 121,949 87,787 NET INCOME $72,881 $29,210 $202,295 $143,309 NET INCOME PER SHARE: Basic $ 0.55 $ 0.22 $ 1.53 $ 1.09 Diluted $ 0.54 $ 0.22 $ 1.52 $ 1.08 WEIGHTED AVERAGE SHARES: Basic 132,736 131,842 132,242 131,805 Diluted 133,744 132,749 133,289 132,718
The following table presents the Endo’s unaudited condensed consolidated balance sheet data at December 31, 2005 and December 31, 2004:
Endo Pharmaceuticals Holdings Inc. Condensed Consolidated Balance Sheet Data (unaudited) (in thousands) December 31, December 31, 2005 2004 ASSETS Cash and cash equivalents $500,956 $278,034 Accounts receivable, net 290,826 139,039 Inventory 50,983 71,415 Income taxes receivable 67,793 - Other current assets 82,827 79,089 Total current assets 993,385 567,577 Property and equipment, net 38,001 28,875 Goodwill 181,079 181,079 Other intangibles, net 99,065 117,258 Note receivable 48,925 45,047 Other assets 11,223 7,655 TOTAL ASSETS $1,371,678 $947,491 LIABILITIES AND STOCKHOLDERS’ EQUITY Due to Endo Pharma LLC $200,450 $42,939 Other current liabilities 309,063 230,309 Total current liabilities 509,513 273,248 Other liabilities 18,795 18,293 Total stockholders’ equity 843,370 655,950 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1,371,678 $947,491
The following table presents condensed consolidated cash flow data for the year ended December 31, 2005 and December 31, 2004 (Certain prior period amounts have been reclassified to conform to the current period presentation):
Endo Pharmaceuticals Holdings Inc. Condensed Consolidated Cash Flow Data (unaudited) (in thousands) Year Ended December 31, 2005 2004 Net cash provided by operating activities $284,644 $170,545 Net cash used in investing activities (26,684) (107,824) Net cash used in financing activities (35,038) (14,260) Net increase in cash and cash equivalents $222,922 $48,461 Cash and cash equivalents
